State of California Department of Corporations
Anthony R. Pierno, Commissioner
In reply refer to: File No. _____
This interpretive opinion is issued by the Commissioner of Corporations pursuant to section 31510 of the franchise investment law. It is applicable only to the transaction identified in the request therefor, and may not be relied upon in connection with any other transaction.
Mr. Rodney M. Gray
Attorney at Law
Hollywood, CA 90028
Dear Mr. Gray :
The request for an interpretive opinion contained in your letter dated March 2, 1971 has been considered by the Commissioner. Your letter raises the question whether the arrangements described therein between Travel Aids Corporation, a California corporation ("Travel Aids"), and its master distributors or subdistributors are franchises within the definition of Section 31005 and subject to the provisions of the. Franchise Investment Law. In our opinion, based on the assumption stated below, this question is answered in the negative.
You have represented that Travel Aids sells its products called "Handi-Paks" through drug stores, variety stores, and similar outlets, by appointing master distributors who in turn may appoint subdistributors with a non-exclusive area of distribution. on consigned merchandise, distributors pay Travel Aids 45%, and the retailer pays 65% of the suggested retail price. Retail prices have not changed during the last seven years.
You have stated that Travel Aids charges no franchise fee. You have also stated, and our opinion is predicated upon the factual assumption, that the price paid by the distributors for the goods sold by Travel Aids is less than the wholesale price, meaning, we further assume, the bona fide wholesale price. We emphasize, however, that we would not consider this assumed fact to be conclusively established by the fact that the price paid by the distributors is equal to only 45% of the retail price.
Travel Aids has no training program for the distributors. It supplies invoices, letterheads, business cards, route books clipboards,and similar items to them. The distributor selects his own trade name. Section 31005 defines "franchise" to include an agreement, either oral or written, between two or more persons by which a franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor, the operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's commercial symbol, such as its tradename, and the franchisee is required to pay a franchise fee.
Section 31011 defines franchise feel to mean any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to, any such payment for goods and services. Pursuant to Section 31011(a), the purchase or agreement to purchase goods at a bona fide wholesale price is not considered the payment of a "franchise fee", and Rule 011 of the Commissioner exempts from the registration requirement of Section 31110 of the Law, any offer or sale of a franchise which would be subject to registration solely because the franchisee purchases or agrees to purchase goods at a price other than the bona fide wholesale price, if the total payment in excess of the bona fide wholesale price computed on an annual basis does not exceed $100.
You have represented that there will be no franchise fee and, as above stated, we assume that the price paid for the goods sold by Travel Aids will be below the bona fide wholesale price. On this assumption, we are of the opinion that the arrangements described by you, as reflected above, are not franchises within the definition of Section 31005, and therefore are not subject to the provisions of the Franchise Investment Law.
Dated: San Francisco California
March 18, 1971
By order of
ANTHONY R. PIERNO
Commissioner of Corporations
HANS A. MATTES
Office of Policy